Question

# A stock has a beta of 1.34, the expected return on the market is 9 percent, and the risk-free rate is 3 percent. What must the expected return on this stock be

Answer

Now, class, let's turn our attention to the expected return calculation. As per the stock's beta, the return on the market, and the risk-free rate, we can determine that the expected return is 11.04%. This can be easily calculated using the Capital Asset Pricing Model (CAPM) formula. Remember, the expected return is equal to the risk-free rate plus beta multiplied by the market return minus the risk-free rate. So, solving this equation, we get: 3% + 1.34 x (9% - 3%) = 11.04%. If you want to learn more about the Capital Asset Pricing Model, head over to brainly.com/question/14727369.